If you are in the market for a new car or have recently purchased one, you may have heard about gap insurance. Although the concept of gap insurance is often brought up in conversations regarding auto protection, what does it actually mean? Understanding what gap insurance is can help you make the decision of whether or not this type of auto coverage is right for you.
What Is Gap Insurance?
Gap insurance, or Guaranteed Asset Protection insurance, is a type of optional auto coverage that will help you pay off the remainder of your car loan in the event that your vehicle is totaled or stolen. A car is deemed totaled when the cost to repair damage after an accident exceeds the cash value of the vehicle. Not everyone needs gap insurance, but it can be very beneficial in certain situations.
Is Gap Insurance Necessary?
Gap insurance is only required in a few situations. For example, many leases require gap insurance coverage. This coverage may even be included in the lease price, so you don’t have to worry about it. Additionally, some car loans may require gap coverage. Even though it is not required in most situations, it can be helpful to have gap insurance if:
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You made less than a 20% down payment when you purchased your car
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Your auto loan is 60 months or longer
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The amount you owe on your loan exceeds the cash value of your vehicle
Taking your unique circumstances into account is important when deciding whether or not gap insurance is right for you. Although it is not required coverage, it is certainly beneficial to have in the event your car is totaled or stolen.
How Does Gap Insurance Work?
If you purchased a brand new car for $35,000, the value of the car decreased as soon as you drove it off the lot. Say you are in a car accident two months after you bought your new car. At the time of the accident the value of your car was $28,000 and you still owe $30,000 on your loan. After being evaluated, your new car has been deemed totaled.
If you have gap insurance, your provider will reimburse you for the amount you owe on your loan, which is $30,000. Without gap insurance, your provider would only reimburse you for the current value of your car, which is $28,000. You would then be responsible for paying the $2,000 difference between the balance of your loan and your vehicle’s value.
Many people ask if they can get more money than their car is worth after an accident, and the answer is yes – only if they have gap insurance and their car is totaled as a result of the accident. It is important to note that you will not receive reimbursement equal to the full amount you originally paid for your new car. You will only be reimbursed for the balance of your loan.
Understanding Gap Insurance With Strickler Insurance
Not having gap insurance when your auto loan has a balance greater than your car’s value could mean that you are reimbursed thousands less in the event of a total loss. Protect your auto investment with Gap insurance. Find out how the local team at Strickler Insurance can help you find coverage by contacting us today.
